The latest report from your
Fund's management team
SEMIANNUAL REPORT
Balanced
Fund
(formerly Sovereign Balanced Fund)
JUNE 30, 1999
TRUSTEES
Edward J. Boudreau, Jr.
Stephen L. Brown
James F. Carlin
William H. Cunningham*
Ronald R. Dion*
Harold R. Hiser, Jr.
Anne C. Hodsdon
Charles L. Ladner
Leo E. Linbeck, Jr.
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
CHAIRMAN'S MESSAGE
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
DEAR FELLOW SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are
getting ready to celebrate this historic transition to a new millennium.
At John Hancock Funds, we share the excitement, but we aren't popping
the champagne corks just yet. Rather, we are staying on the course that
we set more than two years ago to ensure that the transition to a new
millennium is a smooth one for our shareholders.
As many already know, the Year 2000 has created more than the prospect
of New Year's festivities of epic proportions. It has also presented the
world with a challenge: making sure that older computers, and any
equipment powered by computer chips, can properly read and process the
date "00" as 2000, not 1900. Much has been written about how the world
will weather the change. Some view it as a non-event, while others see
the potential for disruptions. How much disruption, and for how long,
depends on whom you talk to.
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an
important issue to be dealt with and we have made it a top priority. Two
years ago, John Hancock Funds put a full-time team of experts on the
case and established a company-wide program to evaluate all computer
applications and to modify or replace those that needed changing.
These modifications and replacements for all mission-critical systems
are done and successfully compliance tested. The rest of 1999 will be
spent completing the few remaining non mission-critical systems, testing
with our business partners and continuing to participate in industry
testing. We have also established additional contingency plans beyond
our regular ones to prepare for any challenges that the Year 2000 might
present. In the end, John Hancock will spend approximately $90-$95
million to ensure we make a successful transition to the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is
featuring articles with more detailed information on Y2K matters of
importance to our shareholders. I encourage you to read them, or contact
one of our Customer Service Representatives at 1-800-225-5291 for
another copy. For your own peace of mind, we also recommend that you
save your 1999 statements, especially those you receive between October
and December, so that you are able to check them against the first one
you receive in 2000. It's a measure of prudence, not panic. Good record
keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although
we cannot make any ironclad assurances, we are confident that the steps
we have taken will provide shareholders with as smooth a transition as
possible. Once that occurs, we will happily raise our glasses to toast
the New Year, future prosperity and our hopes to serve you well into the
2000's.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY JOHN F. SNYDER, III, BARRY H. EVANS, CFA,
AND PETER M. SCHOFIELD, CFA, PORTFOLIO MANAGERS
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock
Balanced Fund. Caption below reads "Portfolio Managers John Snyder (l) and
Barry Evans (r)."]
John Hancock Balanced Fund
Market shifts from growth to value stocks
Effective May 1, 1999, John Hancock Sovereign Balanced Fund shortened
its name to John Hancock Balanced Fund.
The first half of 1999 was marked by two distinct periods of stock
market performance. During the first quarter of the year, we saw a
continuation of 1998 -- where a narrow group of stocks fueled the
market's performance.
The common theme among the market's bigger winners was extremely high
valuations. Technology stocks, once again, topped the list of the
market's strongest performers, driven by a few names such as Microsoft
and America Online. Value stocks with more reasonable prices and solid
fundamentals, on the other hand, lagged behind in the market's first
quarter rally.
In the second quarter, however, the market began to broaden. With
evidence of stronger earnings growth and improvement in other sectors of
the economy, investors started to migrate from the high-valuation stocks
into more value-oriented stocks. As a result, stocks in other sectors --
such as basic materials and capital goods -- began to participate in the
market rally.
"In the
second
quarter
however, the
market began
to broaden."
Performance explained
While the Fund owned many strong performers during the period, what
impacted performance most was the stocks that we didn't own, namely
technology stocks. As discussed in past reports, most technology stocks
simply don't meet our investment criteria. We focus on what we call
"dividend performers" -- companies that have increased their dividends
consistently for at least the past 10 years. Most technology stocks
don't fall into this category, and that caused us to underperform our
peers. Admittedly, our approach is cautious, but it is in keeping with
our goal of risk-averse growth.
[Pie chart at top left hand column with heading "Portfolio
Diversification." The chart is divided into five sections (from top to
left): Preferred Stocks 3%, Short-Term Investments 4%, U.S. Government &
Agencies 12%, Corporate Bonds 17% and Common Stocks 64%. A note below the
chart reads "As a percentage of net assets on June 30, 1999."]
"...what
impacted
performance
most was the
stocks that
we didn't
own, namely
technology
stocks."
Six-month results
For the six months ended June 30, 1999, John Hancock Balanced Fund's
Class A and Class B returned 3.47% and 3.11%, respectively, at net asset
value. By comparison, the average balanced fund returned 5.56% for the
same period, according to Lipper, Inc.1 The Fund's Class C shares, which
were launched on May 1, 1999, returned -1.20% at net asset value from
inception through June 30, 1999. Keep in mind that your net asset value
return will be different from the Fund's performance if you were not
invested in the Fund for the entire period and did not reinvest all
distributions. See pages six and seven for historical performance
information.
Capital goods, basic materials, retailers
Our sizable holdings in capital goods and basic materials stocks
benefited from the market shift in the second quarter. After being
significantly undervalued, stocks in these sectors became much more
appealing to investors looking for value. With the turnaround in the
global economy, particularly Southeast Asia, our multinational holdings
- -- such as Honeywell, Minnesota Mining & Manufacturing and Emerson
Electric -- rebounded strongly.
Retail stocks continued their winning streak from 1998, thanks to solid
wage growth and strong consumer spending. Once again, Dayton Hudson
stood out as a stellar performer among our retail stocks. With the
aggressive expansion of its mass-merchandise chain, Target, throughout
the Northeast and Mid-Atlantic states, the company has successfully
gained market share from competitors.
Paring back overvalued stocks
Throughout the first half of the year, we took advantage of strength in
the market to take profits in some of our higher-valuation stocks.
Examples include fast-food chain McDonald's, advertising agency
Interpublic and mass merchandise giant Wal-Mart Stores. Although these
companies' fundamentals remain extremely solid, their valuations had
just gotten too lofty. So we decided to pare back our holdings in them
in favor of ones that offered better relative value.
[Table at bottom of left hand column entitled "Scorecard". The header for
the left column is "Investment" and the header for the right column is
"Recent Performance...and What's Behind the Numbers". The first listing is
Dayton Hudson followed by an up arrow with the phrase "Expansion of Target
chain." The second listing is Minnesota Mining & Manufacturing followed by
an up arrow with the phrase "Boosted by global recovery." The third listing
is Unum followed by a down arrow with the phrase "Concerns about recent
merger." A note below the table reads "See 'Schedule of Investments.'
Investment holdings are subject to change."]
[Bar chart at top of left hand column with heading "Fund Performance".
Under the heading is a note that reads "For the six months ended June 30,
1999." The chart is scaled in increments of 1% with -2% at the bottom and
6% at the top. The first bar represents the 3.47% total return for John
Hancock Balanced Fund Class A. The second bar represents the 3.11% total
return for John Hancock Balanced Fund Class B. The third bar represents the
- -1.20%* total return for John Hancock Balanced Fund Class C. The fourth bar
represents the 5.56% total return for Average balanced fund. A note below
the chart reads "Total returns for John Hancock Balanced Fund are at net
asset value with all distributions reinvested. The average balanced fund is
tracked by Lipper, Inc.1 See the following two pages for historical
performance information."]
* From inception May 1, 1999 through June 30, 1999.
=========================================================
Beefing up financial stocks
One of the most attractive areas of opportunity has been financial
stocks, where we've increased our stake to 14%, up from 10% at the end
of 1998. One favorite new holding is Fannie Mae, the largest originator
of mortgages in the country. Fears of increased competition caused the
stock to drop sharply at the start of the year. In our view, those fears
were overblown and we took advantage of that decline to add a substantial
position to the portfolio. Barriers to entry are extremely high in this
industry and Fannie Mae's top-notch services and costs would be difficult
for competitors to match.
Bonds maintain low profile
Given our ongoing belief that stocks offered much more upside potential
than bonds, we remained underweighted in bonds throughout the period. By
the end of June, our bond position stood at approximately 29%, down
slightly from 31% six months ago. Although we continued to own some
government bonds, our emphasis shifted toward corporate bonds, given
their attractive yield advantages and the improving economy.
Looking ahead
We expect to see the global economy continue on the road to recovery in
the second half of the year. The worst appears to be over in Southeast
Asia and Japan -- and we're starting to see signs of life emerge in
those economies. As economic recovery takes hold around the world,
multinational companies are likely to be the biggest beneficiaries.
However, there are still challenges facing investors. For one, we don't
expect the global economy to make a quick recovery, but rather a slow
uptick. Second, consumer spending could slow due to increasing debt
levels. And finally, pricing power will likely remain limited, given the
outlook for tame inflation.
In this environment, corporate earnings are still likely to improve.
However, stock selectivity will be critical, especially given the
market's high valuations. Our universe of "dividend performers" is
currently undervalued. And as the market continues to broaden out in the
second half of the year, we believe that investors will likely recognize
their potential.
"We expect
to see the
global
economy
continue on
the road to
recovery..."
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Balanced Fund. Total
return measures the change in value of an investment from the beginning
to the end of a period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable
sales charge of 5%. Class B performance reflects a maximum contingent
deferred sales charge (maximum 5% and declining to 0% over six years).
Class C performance includes a contingent deferred sales charge (1%
declining to 0% after one year).
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Please read your prospectus carefully before you invest or send money.
CLASS A
For the period ended June 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/5/92)
------- ------- -------
Cumulative Total Returns 4.39% 91.65% 107.41%
Average Annual Total Returns 4.39% 13.89% 11.44%
CLASS B
For the period ended June 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/5/92)
------- ------- -------
Cumulative Total Returns 4.10% 92.94% 108.61%
Average Annual Total Returns 4.10% 14.05% 11.54%
CLASS C
For the period ended June 30, 1999
SINCE
INCEPTION
(5/1/99)
-------
Cumulative Total Return (2.19%)
Average Annual Total Return (2.19%)(1)
YIELDS
As of June 30, 1999
SEC 30-DAY
YIELD
-------
John Hancock Balanced Fund:
Class A 2.66%
John Hancock Balanced Fund:
Class B 2.11%
John Hancock Balanced Fund:
Class C 2.11%
Notes to Performance
(1) Not annualized.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the
John Hancock Balanced Fund would be worth on June 30, 1999, assuming all
distributions were reinvested for the period indicated. For comparison,
we've shown the same $10,000 investment in the Standard & Poor's 500 Stock
Index -- an unmanaged index that includes 500 widely traded common stocks
and is often used as a measure of stock market performance.
Assuming all distributions were invested for the period indicated, a
$10,000 investment in the Fund's Class C shares at inception on May 1,
1999, would be worth $9,880 without sales charge and $9,781 with maximum
sales charge, as of June 30, 1999. For comparison, the same $10,000
investment in the Standard & Poor's 500 Stock Index would be worth
$10,306. Past performance is not indicative of future results.
Line chart with the heading John Hancock Balanced Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are three lines. The first line represents
the Standard & Poor's 500 Stock Index and is equal to $38,160 as of June
30, 1999. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Balanced Fund on October 5, 1992,
before sales charge, and is equal to $21,840 as of June 30, 1999. The third
line represents the value of the same hypothetical investment made in the
John Hancock Real Estate Fund, after sales charge, and is equal to $20,741
as of June 30, 1999.
Line chart with the heading John Hancock Balanced Fund Class B*,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
Standard & Poor's 500 Stock Index and is equal to $38,160 as of June 30,
1999. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Balanced Fund on October 5, 1992,
before sales charge, and is equal to $20,861 as of June 30, 1999.
*No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on June 30, 1999.
You'll also find the net asset value and the maximum offering price per
share as of that date.
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
- ------------------------------------------------------------
Assets:
Investments at value - Note C:
Common and preferred stocks
(cost -- $109,563,528) $162,236,835
Corporate bonds
(cost -- $42,392,813) 40,492,218
U.S. government and agencies obligations
(cost -- $29,697,817) 29,502,335
Joint repurchase agreement
(cost -- $11,091,000) 11,091,000
Corporate savings account 625
---------------
243,323,013
Receivable for investments sold 22,680,594
Receivable for shares sold 94,693
Dividends receivable 140,383
Interest receivable 1,367,219
Other assets 30,017
---------------
Total Assets 267,635,919
- ------------------------------------------------------------
Liabilities:
Payable for investments purchased 25,345,408
Payable for shares repurchased 20,850
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 153,948
Accounts payable and accrued expenses 380
---------------
Total Liabilities 25,520,586
- ------------------------------------------------------------
Net Assets:
Capital paid-in 187,905,121
Accumulated net realized
gain on investments 3,639,856
Net unrealized appreciation
of investments 50,577,230
Distributions in excess of
net investment income (6,874)
---------------
Net Assets $242,115,333
============================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $122,710,125/8,544,432 $14.36
============================================================
Class B - $119,298,940/8,305,990 $14.36
============================================================
Class C* - $106,268/7,399 $14.36
============================================================
Maximum Offering Price Per Share**
Class A - ($14.36 x 105.26%) $15.12
============================================================
* Class C commenced operations on May 1, 1999.
** On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains
(losses) for the period stated.
Statement of Operations
Six months ended June 30, 1999 (Unaudited)
- ------------------------------------------------------------
Investment Income:
Interest $2,763,110
Dividends (net of foreign
withholding taxes of $8,412) 1,344,591
---------------
4,107,701
---------------
Expenses:
Investment management fee - Note B 679,473
Distribution and service fee - Note B
Class A 165,789
Class B 570,498
Class C 51
Transfer agent fee - Note B 183,202
Custodian fee 17,864
Accounting and legal
services fee - Note B 16,319
Registration and filing fees 15,027
Auditing fee 13,516
Printing 6,996
Trustees' fees 5,003
Miscellaneous 2,631
Legal fees 1,015
---------------
Total Expenses 1,677,384
- ------------------------------------------------------------
Net Investment Income 2,430,317
- ------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on
investments sold 695,101
Change in net unrealized
appreciation/depreciation
of investments 4,541,309
---------------
Net Realized and Unrealized
Gain on Investments 5,236,410
- ------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $7,666,727
============================================================
See notes to financial statements.
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1999
DECEMBER 31, 1998 (UNAUDITED)
-------------- --------------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $4,388,420 $2,430,317
Net realized gain on
investments sold 13,089,843 695,101
Change in net unrealized
appreciation/depreciation
of investments 8,135,130 4,541,309
-------------- --------------
Net Increase in Net Assets
Resulting from Operations 25,613,393 7,666,727
-------------- --------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.3551 and
$0.1831 per share,
respectively) (2,267,801) (1,475,822)
Class B - ($0.2593 and
$0.1338 per share,
respectively) (1,980,839) (1,110,948)
Class C** - (none and
$0.0643 per share,
respectively) -- (386)
Distributions from net realized
gain on investments sold
Class A - ($0.7372 and none
per share, respectively) (4,791,752) --
Class B - ($0.7372 and none
per share, respectively) (5,780,678) --
-------------- --------------
Total Distributions to
Shareholders (14,821,070) (2,587,156)
-------------- --------------
From Fund Share Transactions
- -- Net:* 16,449,308 24,281,189
-------------- --------------
Net Assets:
Beginning of period 185,512,942 212,754,573
-------------- --------------
End of period (including undistributed
net investment income of $149,965
and distributions in excess of net
investment income of $6,874,
respectively) $212,754,573 $242,115,333
============== ==============
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (continued)
- ------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<S> <C> <C> <C> <C>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1999
DECEMBER 31, 1998 (UNAUDITED)
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A
Shares sold 1,706,479 $23,630,812 3,639,908 $51,302,326
Shares issued to
shareholders in
reinvestment of
distributions 494,608 6,784,234 97,880 1,370,928
-------------- -------------- -------------- --------------
2,201,087 30,415,046 3,737,788 52,673,254
Less shares repurchased (1,621,817) (22,566,492) (2,095,259) (29,601,843)
-------------- -------------- -------------- --------------
Net increase 579,270 $7,848,554 1,642,529 $23,071,411
============== ============== ============== ==============
CLASS B
Shares sold 1,624,484 $22,535,756 965,206 $13,555,151
Shares issued to
shareholders in
reinvestment of
distributions 516,445 7,079,353 70,738 988,910
-------------- -------------- -------------- --------------
2,140,929 29,615,109 1,035,944 14,544,061
Less shares repurchased (1,513,934) (21,014,355) (955,259) (13,439,576)
-------------- -------------- -------------- --------------
Net increase 626,995 $8,600,754 80,685 $1,104,485
============== ============== ============== ==============
CLASS C**
Shares sold -- -- 7,397 $105,274
Shares issued to
shareholders in
reinvestment of
distributions -- -- 21 295
-------------- -------------- -------------- --------------
-- -- 7,418 105,569
Less shares repurchased -- -- (19) (276)
-------------- -------------- -------------- --------------
Net increase -- -- 7,399 $105,293
============== ============== ============== ==============
** Class C commenced operations on May 1, 1999
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's
net assets has changed since the end of the previous period. The
difference reflects earnings less expenses, any investment gains and
losses, distributions paid to shareholders and any increase or decrease
in money shareholders invested in the Fund. The footnote illustrates the
number of Fund shares sold, reinvested and repurchased during the last
two periods, along with the corresponding dollar value.
See notes to financial statements.
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------------------------------------ JUNE 30, 1999
1994 1995 1996 1997 1998 (UNAUDITED)
-------- -------- -------- -------- -------- --------
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.74 $9.84 $11.75 $12.27 $13.33 $14.06
-------- -------- -------- -------- -------- --------
Net Investment Income 0.50 0.44(1) 0.41(1) 0.37(1) 0.36(1) 0.18(1)
Net Realized and Unrealized
Gain (Loss) on Investments (0.88) 1.91 0.99 2.14 1.47 0.30
-------- -------- -------- -------- -------- --------
Total from Investment Operations (0.38) 2.35 1.40 2.51 1.83 0.48
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.50) (0.44) (0.41) (0.37) (0.36) (0.18)
Distributions from Net Realized
Gain on Investments Sold (0.02) -- (0.47) (1.08) (0.74) --
-------- -------- -------- -------- -------- --------
Total Distributions (0.52) (0.44) (0.88) (1.45) (1.10) (0.18)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period $9.84 $11.75 $12.27 $13.33 $14.06 $14.36
======== ======== ======== ======== ======== ========
Total Investment Return at
Net Asset Value(2) (3.51%) 24.23% 12.13% 20.79% 14.01% 3.47%(3)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $61,952 $69,811 $71,242 $84,264 $97,072 $122,710
Ratio of Expenses to Average
Net Assets 1.23% 1.27% 1.29% 1.22% 1.21% 1.13%(4)
Ratio of Net Investment
Income to Average Net
Assets 4.89% 3.99% 3.33% 2.77% 2.61% 2.50%(4)
Portfolio Turnover Rate 78% 45% 80% 115% 83% 50%
Financial Highlights (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------------------------------------ JUNE 30, 1999
1994 1995 1996 1997 1998 (UNAUDITED)
-------- -------- -------- -------- -------- --------
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.75 $9.84 $11.74 $12.27 $13.33 $14.06
-------- -------- -------- -------- -------- --------
Net Investment Income 0.43 0.36(1) 0.32(1) 0.28(1) 0.27(1) 0.13(1)
Net Realized and Unrealized
Gain (Loss) on Investments (0.89) 1.90 1.01 2.14 1.46 0.30
-------- -------- -------- -------- -------- --------
Total from Investment Operations (0.46) 2.26 1.33 2.42 1.73 0.33
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment
Income (0.43) (0.36) (0.33) (0.28) (0.26) (0.13)
Distributions from Net Realized
Gain on Investments Sold (0.02) -- (0.47) (1.08) (0.74) --
-------- -------- -------- -------- -------- --------
Total Distributions (0.45) (0.36) (0.80) (1.36) (1.00) (0.13)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period $9.84 $11.74 $12.27 $13.33 $14.06 $14.36
======== ======== ======== ======== ======== ========
Total Investment Return at
Net Asset Value(2) (4.22%) 23.30% 11.46% 19.96% 13.23% 3.11%(3)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $79,176 $87,827 $90,855 $101,249 $115,682 $119,299
Ratio of Expenses to Average
Net Assets 1.87% 1.96% 1.99% 1.91% 1.88% 1.81%(4)
Ratio of Net Investment
Income to Average Net
Assets 4.25% 3.31% 2.63% 2.08% 1.93% 1.81%(4)
Portfolio Turnover Rate 78% 45% 80% 115% 83% 50%
</TABLE>
Financial Highlights (continued)
- ------------------------------------------------------------
FOR THE PERIOD FROM
MAY 1, 1999
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1999
(UNAUDITED)
---------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning
of Period $14.60
-------
Net Investment Income(1) 0.03
Net Realized and Unrealized
Loss on Investments (0.21)
-------
Total From Investment Operations (0.18)
-------
Less Distributions:
Dividends from Net
Investment Income (0.06)
-------
Net Asset Value, End of
Period $14.36
=======
Total Investment Return at
Net Asset Value(2) (1.20%)(3)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $106
Ratio of Expenses to Average
Net Assets 1.81%(4)
Ratio of Net Investment
Income to Average Net
Assets 1.51%(4)
Portfolio Turnover Rate 50%
(1) Based on the average of the shares outstanding at the end of each
month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Not annualized.
(4) Annualized.
The Financial Highlights summarizes the impact of the following factors on
a single share for each period indicated: net investment income, gains
(losses), distributions and total investment return of the Fund. It shows
how the Fund's net asset value for a share has changed since the end of
the previous period. Additionally, important relationships between some
items presented in the financial statements are expressed in ratio form.
See notes to financial statements.
Schedule of Investments
June 30, 1999 (Unaudited)
Per share earnings and dividends and their compound growth rates are shown
for the most recently reported ten year periods on common stocks, as well
as price/earnings ratios.
- --------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the Balanced Fund on June 30, 1999. It's divided into five main
categories: common stocks, preferred stocks, corporate bonds, U.S.
government and agencies obligations and short-term investments. The common
stocks are further broken down by industry group. Short-term investments,
which represent the Fund's "cash" position, are listed last.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
COMMON STOCKS (63.68%)
Advertising (1.07%)
30,000 Interpublic Group of Companies, Inc. (The) @ 86 5/8 $2,598,750
One of the largest advertising agencies in the world ------------
Earnings P/S $.70, .79, .82, .95, .99, 1.19, 1.36, 1.34, 1.81, 2.18 13.5%
Dividends P/S $.21, .25, .27, .30, .33, .36, .40, .44, .50, .58 11.9%
Price/Earnings Ratio 33.5
Banks (6.21%)
50,000 Bank of America Corp. @ 73 5/16 3,665,625
Holding company for Bank of America and
NationsBank
Earnings P/S $1.45, 2.31, 1.67, .38, 2.26, 2.47, 3.03, 3.53, 4.07, 4.16 12.4%
Dividends P/S $.55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.37, 1.59 12.5%
Price/Earnings Ratio 15.7
45,000 Banc One Corp. @ 59 9/16 2,680,313
Ohio-based bank holding company
Earnings P/S $.98, 1.10, 1.50, 1.88, 2.21, 2.49, 2.07, 2.60, 2.03, 3.13 4.9%
Dividends P/S $.52, .57, .63, .73, .89, 1.02, 1.12, 1.24, 1.38, 1.52 13.0%
Price/Earnings Ratio 15.5
40,000 First Tennessee National Corp. @ 38 5/16 1,532,500
Tennessee-based bank holding company
Earnings P/S $.57, .61, .63, .88, .76, 1.01, 1.12, 1.27, 1.49, 1.70 12.9%
Dividends P/S $.24, .27, .29, .32, .38, .43, .49, .55, .62, .69 12.5%
Price/Earnings Ratio 19.9
70,000 SunTrust Banks, Inc. @ 69 7/16 4,860,625
Holding company for SunTrust Banks operating
through 700 offices in Florida, Georgia,
Tennessee and Alabama.
Earnings P/S $1.31, 1.38, 1.45, 1.64, 1.89, 2.19, 2.47, 2.77, 3.13, 3.50 11.5%
Dividends P/S $.39, .43, .47, .52, .58, .66, .74, .83, .93, 1.00 11.0%
Price/Earnings Ratio 17.9
54,000 Wells Fargo Co. @ 42 3/4 2,308,500
Diversified financial services company providing
banking, insurance, investments and consumer
finance
Earnings P/S $.57, .63, .68, .73, .86, 1.05, 1.21, 1.37, 1.55, 1.75 13.3%
Dividends P/S $.19, .21, .24, .27, .32, .38, .45, .53, .62, .70 15.6%
Price/Earnings Ratio 19.8
------------
15,047,563
------------
Beverages (1.44%)
90,000 PepsiCo, Inc. @ 38 11/16 3,481,875
Second largest soft drink company ------------
Earnings P/S $.57, .68, .68, .82, .87, 1.07, 1.21, .74, .81, 1.40 10.5%
Dividends P/S $.16, .19, .23, .26, .31, .35, .39, .45, .49, .52 14.0%
Price/Earnings Ratio 31.4
Building (1.31%)
110,000 Masco Corp. @ 28 7/8 3,176,250
Manufactures building, home improvement ------------
and consumer products
Earnings P/S $.71, .46, .14, .37, .68, .79, .55, .70, 1.14, 1.39 7.8%
Dividends P/S $.25, .27, .29, .31, .33, .35, .37, .39, .41, .43 6.2%
Price/Earnings Ratio 18.8
Chemicals (1.23%)
100,000 RPM, Inc. @ 14 3/16 1,418,750
Manufacturer of specialty chemicals and
coatings to waterproof and rustproof structures
Earnings P/S $.31, .34, .36, .43, .46, .64, .69, .65, .84, .91 12.7%
Dividends P/S $.22, .24, .27, .29, .31, .34, .36, .39, .42, .45 8.3%
Price/Earnings Ratio 15.9
45,000 Sigma-Aldrich Corp. @ 34 7/16 1,549,688
Manufacturer of biochemical and organic
products used for research and diagnostics
Earnings P/S $.65, .72, .62, .93, 1.04, 1.11, 1.26, 1.44, 1.61, 1.68 11.1%
Dividends P/S $.09, .10, .11, .13, .15, .17, .19, .23, .26, .28 13.4%
Price/Earnings Ratio 19.3
------------
2,968,438
------------
Computers (0.91%)
50,000 Automatic Data Processing, Inc. @ 44 2,200,000
Largest independent computing services ------------
firm in the U.S.
Earnings P/S $.31, .36, .41, .46, .52, .59, .68, .77, .93, .99 12.1%
Dividends P/S $.07, .08, .10, .11, .13, .15, .18, .21, .24, .28 14.2%
Price/Earnings Ratio 39.5
Containers (0.49%)
30,000 Bemis Co., Inc. @ 39 3/4 1,192,500
Producer of a broad range of flexible packaging ------------
and equipment and pressure sensitive materials
Earnings P/S $.90, .99, .98, 1.14, .84, 1.33, 1.55, 1.84, 1.95, 2.15 10.2%
Dividends P/S $.30, .36, .42, .46, .50, .54, .64, .72, .80, .88 12.7%
Price/Earnings Ratio 18.3
Diversified Operations (2.21%)
30,000 DuPont (E.I.) De Nemours & Co. @ 68 5/16 2,049,375
Nation's largest chemical manufacturer
Earnings P/S $1.77, 1.70, 1.57, .66, .12, 1.70, 2.72, 3.05, 2.43, 1.38 NMF
Dividends P/S $.73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23, 1.37 7.2%
Price/Earnings Ratio 27.2
10,000 Johnson Controls, Inc. @ 69 5/16 693,125
Manufactures automotive systems and
building controls
Earnings P/S $1.21, 1.07, 1.10, 1.43, 1.58, 1.90, 2.27, 2.55, 2.52, 3.89 13.9%
Dividends P/S $.59, .61, .63, .65, .69, .74, .79, .83, .88, .94 5.3%
Price/Earnings Ratio 16.9
30,000 Minnesota Mining & Manufacturing Co. @ 86 15/16 2,608,125
Manufactures industrial, commercial and
health care products
Earnings P/S $2.83, 2.94, 2.71, 2.76, 2.91, 2.81, 3.18, 3.36, 5.15, 3.28 1.7%
Dividends P/S $1.30, 1.46, 1.56, 1.60, 1.66, 1.76, 1.88, 1.92, 2.12, 2.20 6.0%
Price/Earnings Ratio 22.3
------------
5,350,625
------------
Electronics (5.46%)
30,000 Emerson Electric Co. @ 62 7/8 1,886,250
Produces and sells electrical/electronic
products and systems
Earnings P/S $1.32, 1.38, 1.42, 1.48, 1.58, 2.02, 1.95, 2.28, 2.52, 2.80 8.7%
Dividends P/S $.58, .64, .67, .70, .74, .80, .92, 1.01, 1.11, 1.21 8.5%
Price/Earnings Ratio 22.3
45,000 General Electric Co. @ 113 5,085,000
Dominant force in home appliances, electrical
power and financial services --
Earnings P/S $1.09, 1.22, 1.27, 1.27, 1.16, 1.66, 1.89, 2.14, 2.42, 2.75 10.8%
Dividends P/S $.43, .48, .52, .58, .65, .75, .85, .95, 1.08, 1.25 12.6%
Price/Earnings Ratio 35.2
45,000 Grainger (W.W.), Inc. @ 53 13/16 2,421,563
Leading distributor of electrical equipment
Earnings P/S $1.10, 1.16, 1.18, 1.28, 1.38, 1.64, 1.34, 1.99, 2.21, 2.42 9.2%
Dividends P/S $.25, .28, .31, .33, .35, .39, .45, .49, .53, .59 10.0%
Price/Earnings Ratio 21.1
33,000 Honeywell, Inc. @ 115 7/8 3,823,875
Makes automation and control systems
Earnings P/S $3.55, 2.52, 2.37, 3.41, 1.78, 2.19, 2.44, 2.96, 3.51, 4.32 2.2%
Dividends P/S $.57, .70, .77, .84, .91, .97, 1.01, 1.06, 1.09, 1.13 7.9%
Price/Earnings Ratio 23.1
------------
13,216,688
------------
Finance (3.80%)
100,000 Citigroup, Inc. @ 47 1/2 4,750,000
Diversified global financial services company
offering commercial/consumer banking,
investment banking, brokerage services and
insurance to consumer and corporate
customers around the world
Earnings P/S $.32, .36, .48, .59, .86, .86, 1.09, 1.70, 2.12, 1.77 20.9%
Dividends P/S $.03, .04, .05, .08, .11, .14, .18, .20, .27, .37 32.1%
Price/Earnings Ratio 18.5
65,000 Fannie Mae @ 68 3/8 4,444,375
Largest U.S. investor in home mortgage loans
providing funds to the mortgage market by
purchasing mortgage loans from various
nationwide lenders
Earnings P/S $.78, 1.12, 1.25, 1.48, 1.71, 1.94, 2.16, 2.50, 2.83, 3.25 17.1%
Dividends P/S $.11, .18, .26, .35, .46, .60, .68, .76, .84, .96 21.2%
Price/Earnings Ratio 18.7
------------
9,194,375
------------
Furniture (1.78%)
155,000 Leggett & Platt, Inc. @ 27 13/16 4,310,938
Produces intermediate products for the home ------------
furnishings industry
Earnings P/S $.33, .33, .16, .38, .49, .65, .78, .81, 1.05, 1.23 15.7%
Dividends P/S $.09, .105, .108, .12, .14, .16, .19, .23, .27, .32 15.1%
Price/Earnings Ratio 18.8
Insurance (4.80%)
40,000 AFLAC Corp. @ 47 7/8 1,915,000
Global specialty insurer
Earnings P/S $.27, .38, .46, .57, .72, .90, 1.14, 1.21, 2.28, 1.74 23.0%
Dividends P/S $.08, .09, .10, .11, .13, .15, .17, .19, .22, .25 13.5%
Price/Earnings Ratio 24.1
24,000 American International Group, Inc.
@ 117 1/16 2,809,500
Broadly based property-casualty insurance
organization
Earnings P/S $1.31, 1.36, 1.42, 1.46, 1.74, 1.97, 2.27, 2.64, 3.04, 3.48 11.5%
Dividends P/S $.07, .08, .09, .10, .11, 13, .14, .16, .19, .21 13.0%
Price/Earnings Ratio 30.5
70,000 ReliaStar Financial Corp. @ 43 3/4 3,062,500
Financial services company engaged in
life/health insurance and consumer finance
Earnings P/S $.68, .79, .86, .96, 1.26, 1.53, 2.08, 2.46, 2.61, 2.89 17.4%
Dividends P/S $.30, .32, .35, .37, .39, .44, .49, .55, .61, .71 10.0%
Price/Earnings Ratio 13.8
70,000 UNUM Corp. @ 54 3/4 3,832,500
Holding company for Unum Life Insurance
Company of America
Earnings P/S $.97, 1.35, 1.51, 1.78, 1.89, 1.20, 1.88, 1.72, 2.43, 2.69 12.0%
Dividends P/S $.14, .19, .25, .31, .38, .46, .52, .55, .57, .59 17.3%
Price/Earnings Ratio 16.9
------------
11,619,500
------------
Leisure (1.12%)
97,500 Hasbro, Inc. @ 27 15/16 2,723,906
Designs, manufactures and markets toys, ------------
games and interactive software
Earnings P/S $.46, .46, .42, .89, .96, .84, .86, .98, 1.13, 1.07 9.8%
Dividends P/S $.04, .05, .07, .08, .10, .12, .13, .17, .20, .21 20.2%
Price/Earnings Ratio 19.2
Machinery (1.99%)
40,000 Dover Corp. @ 35 1,400,000
Manufactures a variety of specialized
industrial products
Earnings P/S $.57, .64, .56, .54, .66, .83, 1.17, 1.67, 1.72, 1.72 13.1%
Dividends P/S $.18, .19, .21, .22, .23, .25, .28, .32, .36, .40 9.3%
Price/Earnings Ratio 23.0
75,000 Pentair, Inc. @ 45 3/4 3,431,250
Manufactures enclosures for electrical, electronic,
woodworking and power tool equipment
Earnings P/S $.93, .96, 1.01, 1.06, 1.19, 1.20, 1.40, 1.73, 2.11, 2.57 12.0%
Dividends P/S $.27, .29, .31, .33, .34, .36, .40, .50, .54, .60 9.3%
Price/Earnings Ratio 15.6
------------
4,831,250
------------
Media (3.70%)
65,000 Gannett Co., Inc. @ 71 3/8 4,639,375
Publishes 81 daily/50 nondaily newspapers,
operates 10 TV, 8 FM and 7 AM stations
Earnings P/S $1.23, 1.17, 1.04, 1.13, 1.32, 1.53, 1.67, 1.69, 2.73, 3.42 12.0%
Dividends P/S $.56, .61, .62, .63, .65, .67, .69, .71, .74, .78 3.8%
Price/Earnings Ratio 23.2
80,000 McGraw-Hill Cos., Inc. @ 53 15/16 4,315,000
Provides informational products and services
for business and industry
Earnings P/S $.21, .88, .76, .78, .06, 1.03, 1.14, 1.25, 1.46, 1.68 25.9%
Dividends P/S $.50, .54, .55, .56, .57, .58, .60, .66, .72, .78 5.1%
Price/Earnings Ratio 28.0
------------
8,954,375
------------
Medical (5.72%)
60,000 Abbott Laboratories @ 45 1/2 2,730,000
Major pharmaceutical and health care firm
Earnings P/S $.49, .56, .61, .71, .82, .91, 1.03, 1.17, 1.32, 1.49 13.2%
Dividends P/S $.17, .20, .24, .29, .33, .37, .41, .53, .59 14.8%
Price/Earnings Ratio 27.2
60,000 Baxter International, Inc. @ 60 5/8 3,637,500
The company operates four divisions: renal,
biotech, cardiovascular and intravenous
systems and international distribution
Earnings P/S $1.49, (.05), 2.10, 1.80, 1.69, (.62), 1.41, 2.07, .99, 1.03 NMF
Dividends P/S $.56, .64, .74, .86, 1.00, 1.03, 1.11, 1.17, 1.14, 1.16 8.4%
Price/Earnings Ratio 20.7
70,000 Bristol-Myers Squibb Co. @ 70 7/16 4,930,625
Produces pharmaceuticals, medical devices,
non-prescription health products
Earnings P/S $.72, 1.67, 1.89, 2.00, 1.61, 1.97, 2.02, 1.98, 3.13, 3.55 19.4%
Dividends P/S $1.02, 1.10, 1.25, 1.40, 1.45, 1.47, 1.49, 1.51, 1.53, 1.60 5.1%
Price/Earnings Ratio 35.0
26,000 Johnson & Johnson @ 98 2,548,000
Major producer of prescription and
non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S $.80, .85, 1.07, 1.20, 1.35, 1.53, 1.80, 2.11, 2.42, 2.68 14.4%
Dividends P/S $.28, .33, .39, .45, .51, .57, .64, .74, .85, .97 14.8%
Price/Earnings Ratio 32.6
------------
13,846,125
------------
Office (1.33%)
50,000 Pitney Bowes, Inc. @ 64 1/4 3,212,500
Manufactures office automation equipment ------------
Earnings P/S $.60, .67, .88, .94, .95, 1.12, 1.28, 1.51, 1.73, 2.01 14.4%
Dividends P/S $.26, .30, .34, .39, .45, .52, .60, .69, .80, .90 14.8%
Price/Earnings Ratio 28.8
Oil & Gas (3.56%)
30,000 Chevron Corp. @ 95 3/16 2,855,625
One of the largest integrated, international oil
companies with interest in petrochemicals
Earnings P/S $.37, 3.05, 2.69, 1.69, 3.14, 2.09, 3.03, 2.64, 4.35, 3.68 29.1%
Dividends P/S $1.40, 1.48, 1.63, 1.65, 1.75, 1.85, 1.93, 2.08, 2.28, 2.44 6.4%
Price/Earnings Ratio 31.7
30,000 Mobil Corp. @ 99 2,970,000
One of the largest integrated, international
oil companies with interest in petrochemicals
Earnings P/S $2.20, 2.05, 2.63, 1.43, 2.74, 1.92, 2.61, 3.83, 4.05, 3.21 4.3%
Dividends P/S $1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96, 2.12, 2.28 6.6%
Price/Earnings Ratio 33.2
60,000 Shell Transport & Trading Co., PLC
American Depositary Receipts
(Great Britain) @ 37 1/8 2,782,500
Involved in all phases in the petroleum industry
Earnings P/S $.62, .76, .63, .70, .64, .87, 1.01, 1.27, 1.33, 1.57 10.9%
Dividends P/S $.08, .09, .11, .12, .13, .14, .15, .17, .19, .21 11.3%
Price/Earnings Ratio 18.3
------------
8,608,125
------------
Retail (8.13%)
42,000 Albertson's, Inc. @ 51 9/16 2,165,625
One of the largest retail food-drug chains in
the United States
Earnings P/S $.74, .83, .94, .95, 1.24, 1.58, 1.80, 1.96, 1.99, 2.24 13.1%
Dividends P/S $.19, .23, .27, .31, .35, .42, .50, .58, .63, .67 15.0%
Price/Earnings Ratio 19.8
70,000 Dayton Hudson Corp. @ 65 4,550,000
General merchandiser selling through Target
and Marvyn stores
Earnings P/S $.89, .92, .75, .71, .76, .96, .80, 1.07, 1.48, 1.94 9.0%
Dividends P/S $.19, .22, .24, .25, .27, .28, .29, .31, .33, .36 7.4%
Price/Earnings Ratio 29.6
55,000 Home Depot, Inc. (The) @ 64 7/16 3,544,063
Operates a chain of retail building suppy/home
improvement "warehouse" stores
Earnings P/S $.11, .14, .19, .25, .33, .42, .49, .61, .77, 1.03 28.2%
Dividends P/S $.008, .012, .02, .03, .04, .05, .06, .08, .10, .12 35.1%
Price/Earnings Ratio 46.4
46,000 McDonald's Corp. @ 41 5/16 1,900,375
Develops, operates, franchises and services
a worldwide system of restaurants
Earnings P/S $.48, .54, .57, .63, .71, .82, .97, 1.08, 1.15, 1.26 11.3%
Dividends P/S $.07, .08, .09, .10, .11, .12, .13, .15, .16, .18 11.1%
Price/Earnings Ratio 29.1
155,000 SYSCO Corp. @ 29 13/16 4,620,937
Largest distributor of food service products
Earnings P/S $.37, .38, .43, .47, .55, .62, .71, .68, .87, .98 11.4%
Dividends P/S $.046, .05, .07, .11, .14, .18, .22, .26, .30, .36 25.7%
Price/Earnings Ratio 29.0
60,000 Wal-Mart Stores, Inc. @ 48 1/4 2,895,000
Operates chain of discount department stores
Earnings P/S $.19, .24, .29, .35, .44, .51, .59, .60, .67, .78 16.9%
Dividends P/S $.03, .04, .05, .06, .07, .09, .10. .11, .13, .15 19.5%
Price/Earnings Ratio 41.3
------------
19,676,000
------------
Tobacco (0.66%)
40,000 Philip Morris Cos., Inc. @ 40 3/16 1,607,500
Global tobacco, brewing and food company ------------
Earnings P/S $1.05, 1.27, 1.45, 1.65, 1.67, 1.52, 2.08, 2.47, 2.68, 2.64 10.8%
Dividends P/S $.42, .52, .64, .78, .87, 1.01, 1.22, 1.47, 1.60, 1.68 16.7%
Price/Earnings Ratio 12.3
Utilities (6.76%)
25,000 ALLTEL Corp. @ 71 1/2 1,787,500
Provides wireline and wireless communications
and information services
Earnings P/S $1.13, 1.20, 1.18, 1.18, 1.35, 1.56, 1.61, 1.50, 2.53, 2.24 7.9%
Dividends P/S $.59, .66, .71, .76, .82, .90, .98, 1.06, 1.12, 1.18 8.0%
Price/Earnings Ratio 27.1
45,000 Ameritech Corp. @ 73 1/2 3,307,500
One of the world's largest communications
companies
Earnings P/S $1.15, 1.18, 1.19, 1.13, 1.33, 1.04, 1.83, 1.78, 2.06, 3.14 11.8%
Dividends P/S $.75, .81, .86, .89, .93, .97, 1.02, 1.08, 1.15, 1.22 5.6%
Price/Earnings Ratio 26.5
40,000 Bell Atlantic Corp. @ 65 3/8 2,615,000
Telecommunications company providing voice
and data services in the Mid-Atlantic region
Earnings P/S $1.36, 1.69, 1.09, 1.69, 1.63, 1.63, 2.04, 2.00, 1.45, 1.83 3.4%
Dividends P/S $1.10, 1.18, 1.26, 1.30, 1.34, 1.38, 1.40, 1.44, 1.51, 1.54 3.8%
Price/Earnings Ratio 20.7
57,500 CenturyTel, Inc. @ 39 3/4 2,285,624
Louisiana-based telecommunications company
Earnings P/S $.40, .42, .48, .72, .93, 1.06, 1.41, 1.43, 2.08, 3.02 25.2%
Dividends P/S $.18, .19, .191, .196, .21, .213, .22, .24, .25, .26 4.2%
Price/Earnings Ratio 24.1
25,000 Duke Energy Corp. @ 54 3/8 1,359,374
Generates, transmits, distributes and sells
electric energy in the Piedmont sections
of North and South Carolina
Earnings P/S $2.57, 2.40, 2.51, 2.08, 2.83, 3.00, 3.26, 2.73, 2.66, 3.60 3.8%
Dividends P/S $1.52, 1.60, 1.68, 1.76, 1.84, 1.92, 2.00, 2.08, 2.16, 2.20 4.2%
Price/Earnings Ratio 15.3
110,000 Questar Corp. @ 19 1/8 2,103,750
Diversified holding company for Utah, Wyoming
and Colorado natural gas transmission,
distribution and storage
Earnings P/S $.82, .78, .85, .80, 1.12, .99, .60, 1.15, 1.27, 1.21 4.4%
Dividends P/S $.47, .49, .51, .52, .55, .57, .58, .60, .62, .65 3.7%
Price/Earnings Ratio 14.9
50,000 SBC Communications, Inc. @ 58 2,900,000
Provides telephone service throughout the
United States and internationally
Earnings P/S $.91, .92, .90, 1.09, (1.37), 1.53, (1.66), 1.74, .88, 2.01 9.2%
Dividends P/S $.64, .68, .71, .73, .75, .78, .82, .85, .89, .93 4.2%
Price/Earnings Ratio 23.6
------------
16,358,748
------------
TOTAL COMMON STOCKS
(Cost $101,417,390) 154,176,031
------------
PREFERRED STOCKS (3.33%)
23,256 CSC Holdings, Inc., 11.125%, Ser M @ 109 2,534,904
21,813 CSC Holdings, Inc., 11.750%, Ser H @ 111 1/2 2,432,150
30,000 Lasmo America Ltd., 8.150% (R) @ 103 1/8 3,093,750
------------
TOTAL PREFERRED STOCKS
(Cost $8,146,138) 8,060,804
------------
TOTAL COMMON AND PREFERRED STOCKS
(Cost $109,563,528) 162,236,835
------------
PAR VALUE
(000s
OMITTED)
- ------------
CORPORATE BONDS (16.72%)
$1,000 Adelphia Communications Corp., Sr Note
9.25% 10-01-02 @ 105.500 1,012,500
1,000 Barclays North American Capital Corp.,
Gtd Cap Note (United Kingdom) 9.750%
05-15-21 @ 112.773 1,084,890
2,000 Beaver Valley Funding Corp. II, Deb 9.00%
06-01-17 @107.000 2,140,000
2,250 Cablevison Systems Corp., Sr Deb Ser B
8.125% 08-15-09 @ 107.155 2,261,946
1,500 Continental Cablevision, Inc., Deb 9.50%
08-01-13 @ 116.136 1,679,085
2,000 Delta Air Lines, Deb 9.00% 05-15-16
@ 110.41 2,208,180
1,300 GTE Corp., Deb 10.25% 11-01-20
@ 112.421 1,420,328
3,600 Inter-American Development Bank, Bond
(Supra National) 12.250% 12-15-08
@ 153.424 5,063,040
1,800 Landeskreditbank Baden Wuerttemberg,
Sub Note (Germany) 7.625% 02-01-23
@ 115.721 1,835,784
2,500 Long Island Lighting Co., Deb 8.20%
03-15-23 @ 111.000 2,606,250
$ 600 Massachusetts Mutual Life Insurance Co.,
Surplus Note 7.625% 11-15-23 (R)
@ 113.250 618,900
1,664 Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 10.33% 07-23-02
@ 105.983 1,755,820
750 New York Life Insurance Co., Surplus Note
7.50% 12-15-23 (R) @ 106.221 730,733
1,146 North Atlantic Energy Corp., 1st Mtg Bond
9.050% 06-01-02 @ 103.899 1,178,226
1,000 Northwest Airlines Corp., Note
8.375% 03-15-04 @ 96.246 953,770
2,500 Northwest Airlines Corp., Note
7.625% 03-15-05 @ 94.796 2,287,325
3,000 Quebec, Province of, Deb (Canada)
7.50% 07-15-23 @ 113.831 3,049,980
1,000 Rogers Cablesystems Ltd., Note 9.625%
01-01-02 @ 107.500 1,047,500
500 Scandinavian Airline System, Deb (Sweden)
9.125% 07-20-99 @ 101.875 501,250
1,100 Security Pacific Corp., Sub Note 11.50%
11-15-00 @ 110.672 1,176,769
1,000 Standard Credit Card Master Trust I,
Class A Credit Card Part Ctf Ser 1994-2,
7.250% 04-07-08 @ 108.125 1,023,750
750 Standard Credit Card Master Trust,
Ser 1995-1 8.25% 01-08-07 @ 111.656 802,500
1,550 TKR Cable I Inc., Sr Deb 10.50%, 10-30-07
@ 109.015 1,651,804
2,159 Westinghouse Credit Corp., Deb 8.875%
06-14-14 @ 111.250 2,401,888
------------
TOTAL CORPORATE BONDS
(Cost $42,392,813) 40,492,218
------------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (12.19%)
1,557 Federal National Mort. Assn., Sr Sub 7.00%
07-01-11 @ 102.142 1,562,036
949 Federal National Mort. Assn., Sr Sub 7.50%
08-01-08 @ 102.847 965,949
2,000 Freddie Mac, Deb 5.00% 01-15-04
@ 94.78 1,895,600
1,790 Financing Corp., Bond 9.65% 11-02-18
@ 146.078 2,377,621
5,005 Government National Mort. Assn., 6.00%
11-15-28 @ 99.125 4,676,754
1,339 Government National Mort. Assn., 7.00%
06-15-23 @ 102.343 1,325,544
59 Government National Mort. Assn., 9.00%
04-15-21 @ 107.405 63,096
15,000 United States Treasury, Bond 5.250%
11-15-28 @ 102.375 13,476,600
2,250 United States Treasury, Bond 12.00%
08-15-13 @ 152.672 3,159,135
------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $29,697,817) 29,502,335
------------
INTEREST
RATE
-----------
SHORT-TERM INVESTMENTS (4.58%)
11,091 Joint Repurchase Agreement (4.58%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
06-30-99, due 07-01-99
(Secured by U.S. Treasury
Bonds 9.875% and 11.250%
due 02-15-15 and 11-15-15)
- Note A 4.80% 11,091,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% 625
-----------
TOTAL SHORT-TERM INVESTMENTS (4.58%) 11,091,625
---------- -----------
TOTAL INVESTMENTS (100.50%) 243,323,013
---------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.50%) (1,207,680)
---------- -----------
TOTAL NET ASSETS (100.00%) $242,115,333
========== ===========
</TABLE>
NMF = No Meaningful Figure
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $4,443,383 or 1.84% of
the Fund's net assets as of June 30, 1999.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Investment Trust (the "Trust") is an open-end management
investment company, registered under the Investment Company Act of 1940.
The Trust consists of four series portfolios: John Hancock Balanced Fund
(the "Fund"), John Hancock Large Cap Value Fund, John Hancock Real
Estate Fund and John Hancock Sovereign Investors Fund. Prior to May 1,
1999, the Fund was known as John Hancock Sovereign Balanced Fund and
John Hancock Large Cap Value Fund was known as John Hancock Growth and
Income Fund. The other three series of the Trust are reported in
separate financial statements. The investment objectives of the Fund are
to provide current income, long-term growth of capital and income, and
preservation of capital.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B shares and Class C shares.
The Trustees authorized the issuance of Class C shares effective May 1,
1999. The shares of each class represent an interest in the same
portfolio of investments of the Fund and have equal rights to voting,
redemptions, dividends and liquidation, except that certain expenses
subject to the approval of the Trustees, may be applied differently to
each class of shares in accordance with current regulations of the
Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class, which bears distribution and service expenses
under terms of a distribution plan, have exclusive voting rights
regarding such distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost,
which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in a joint repurchase
agreement. Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of
the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributed to shareholders. Therefore, no federal
income tax provision is required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment
securities is recorded on the ex-dividend date. Interest income on
investment securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principals. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on
securities from either the date of issue or date of purchase over the
life of the security, as required by the Internal Revenue Code.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the Fund level and allocated daily to
each class of shares based on the appropriate net assets of the
respective classes. Distribution and service fees, if any, are
calculated daily at the class level based on the appropriate net assets
of each class and the specific expense rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual Fund. Expenses which are not readily
identifiable to a specific Fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the Funds.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. Effective March 12, 1999, the Fund entered into a syndicated
line of credit agreement with various banks, and the agreements
previously in effect were terminated. This agreement enables the Fund to
participate with other funds managed by the Adviser in an unsecured line
of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing.
In addition, a commitment fee based on the average daily unused portion
of the line of credit is allocated among the participating funds. The
Fund had no borrowing activity for the period ended June 30, 1999.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of 0.60% of the
Fund's average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
June 30, 1999, JH Funds received net sales of $365,823 with regard to
sales of Class A shares. Out of this amount, $18,681 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, $281,063 was paid as sales commissions to unrelated
broker-dealers, and $66,079 was paid as sales commissions to sales
personnel of Signator Investors, Inc. ("Signator Investors"), a related
broker-dealer. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of
Signator Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.0% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class B shares. For the period ended June 30, 1999, contingent deferred
sales charges paid to JH Funds amounted to $83,326.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market
value at the time of redemption or the original purchase cost of the
shares being redeemed. Proceeds from the CDSC are paid to JH Funds and
are used in whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale
of Class C shares. There were no contingent deferred sales charges
received by JH Funds for the period ended June 30,1999.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A, Class B and Class C pursuant to Rule
12b-1 under the Investment Company Act of 1940. Accordingly, the Fund
will make payments to JH Funds for distribution and service expenses, at
an annual rate not to exceed 0.30% of Class A average daily net assets
and 1.00% of Class B and Class C average daily net assets to reimburse
JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended
Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain
circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc.("Signature Services"), an indirect subsidiary of JHMLICo.
The Fund pays transfer agent fees based on the number of shareholder
accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Funds. The compensation for the
period was at an annual rate of less than 0.02% of the average net
assets of each Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon
and Mr. Richard S. Scipione are trustees and/or officers of the Adviser
and/or its affiliates, as well as Trustees of the Fund. The compensation
of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees
may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. The investment had no impact on the
operations of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the period ended June 30, 1999, aggregated $35,400,047 and
$21,400,069, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies, during the period
ended June 30, 1999, aggregated $91,013,022 and $86,832,205,
respectively.
The cost of investments owned at June 30, 1999 (excluding the
corporate savings account), for federal income tax purposes was
$192,905,890. Gross unrealized appreciation and depreciation of
investments aggregated $53,985,899 and $3,569,401, respectively, resulting
in net unrealized appreciation of $50,416,498.
Historical Data (Unaudited)
The table below shows the record of the Fund since inception in 1992.
- ----------------------------------------------------------------------
CLASS A PER SHARE
YEAR -------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- -------- ---------- ----------- --------- -------------
1992(1) 568,842 $0.0473 $10.19 --
1993 5,792,163 0.4539 10.74 $0.1390
1994 6,295,898 0.4951 9.84 0.0231
1995 5,943,279 0.4373 11.75 --
1996 5,805,051 0.4113 12.27 0.4733
1997 6,322,633 0.3717 13.33 1.0829
1998 6,901,903 0.3551 14.06 0.7372
1999(2) 8,544,432 0.1831 14.36 --
CLASS B PER SHARE
YEAR -------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- -------- ---------- ----------- --------- -------------
1992(1) 1,403,452 $0.0292 $10.20 --
1993 7,327,059 0.3816 10.75 $0.1390
1994 8,046,236 0.4296 9.84 0.0231
1995 7,478,401 0.3632 11.74 --
1996 7,404,823 0.3257 12.27 0.4733
1997 7,598,310 0.2770 13.33 1.0829
1998 8,225,305 0.2593 14.06 0.7372
1999(2) 8,305,990 0.1338 14.36 --
CLASS C PER SHARE
YEAR -------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- -------- ---------- ----------- --------- -------------
1999(3) 7,399 $0.0643 $14.36 --
(1) For the period October 5, 1992 (commencement of operations) to
December 31, 1992.
(2) For the period ended June 30, 1999.
(3) For the period May 1, 1999 (commencement of operations) to June 30,
1999.
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks
held in the Balanced Fund as of June 30, 1999.
PERCENT OF
DIVIDEND INCREASE
-------
Abbott Laboratories 11.1%
AFLAC Corp. 13.0
Albertson's, Inc. 6.3
ALLTEL Corp. 5.2
American International
Group, Inc. 12.0
Ameritech Corp. 5.8
Automatic Data Processing, Inc. 15.1
Banc One Corp. 10.0
Bank of America Corp. 18.4
Baxter International, Inc. 3.0
Becton, Dickinson & Co. 17.2
Bell Atlantic Corp. 4.1
Bemis Co., Inc. 10.0
Bristol-Myers Squibb Co. 10.3
CenturyTel, Inc. 5.4
Chevron Corp. 5.2
Citigroup, Inc. 44.0
Dayton Hudson Corp. 12.5
Dover Corp. 10.5
Duke Energy Corp. 3.8
DuPont (E.I.) De Nemours & Co. 11.1
Emerson Electric Co. 10.2
Fannie Mae 8.7
First Tennessee National Corp. 15.2
Gannett Co., Inc. 5.3
General Electric 16.7
Grainger (W.W.), Inc. 11.1
Hasbro, Inc. 20.0
Home Depot, Inc. (The) 20.0
Honeywell, Inc. 3.6
Interpublic Group of
Companies, Inc. (The) 15.4
Johnson & Johnson 13.6
Johnson Controls, Inc. 8.7
Leggett & Platt, Inc. 6.7
Masco Corp. 4.8
McDonald's Corp. 9.1
McGraw-Hill Cos., Inc. 8.3
Minnesota Mining &
Manufacturing Co. 3.8
Mobil Corp. 7.5
Pentair, Inc. 6.7
PepsiCo, Inc. 4.0
Philip Morris Cos., Inc. 10.0
Pitney Bowes, Inc. 12.5
Questar Corp. 4.8
ReliaStar Financial Corp. 19.4
RPM, Inc. 4.9
SBC Communications, Inc. 4.5
Sigma-Aldrich Corp. 3.6
SunTrust Banks, Inc. 9.3
SYSCO Corp. 11.1
UNUM Corp. 3.5
Wal-Mart Stores, Inc. 14.8
Wells Fargo Co. 12.1
-------
The average dividend
increase for this group was 10.3%
=======
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360SA 6/99
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